Social Security, mortgage breaks ideas for slashing U.S. deficit

Social Security, mortgage tax breaks on the table

by Andrew Taylor - Nov. 11, 2010 12:00 AMAssociated Press

WASHINGTON - In a politically incendiary plan, the bipartisan leaders of President Barack Obama's deficit commission proposed curbs in Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans on Wednesday to stem a flood of red ink that they say threatens the nation's future.

The White House responded coolly, some leading lawmakers less so to proposals that target government programs long considered all but sacred. Besides Social Security, Medicare spending would be curtailed. Tax breaks for many health-care plans, too. And the Pentagon's budget, as well, in a plan designed to cut total deficits by as much as $4 trillion over the next decade.

The plan arrived exactly one week after elections that featured strong voter demands for economic change in Washington. But criticism was immediate from advocacy groups on the left and, to some extent, the right at the start of the postelection debate on painful steps necessary to rein in out-of-control deficits.

The plan would gradually increase the retirement age for full Social Security benefits - to 69 by 2075 - and current recipients would receive smaller-than-anticipated annual increases. Equally controversial, it would eliminate the current tax deduction that homeowners receive for the interest they pay on their mortgages.

No one is expecting quick action on any of the plan's pieces. Proposed cuts to Social Security and Medicare are making liberals recoil. And conservative Republicans are having difficulty with options suggested for raising taxes. The plan also calls for cuts in farm subsidies, foreign aid and the Pentagon's budget.

The document was released by Democrat Erskine Bowles, a former Clinton White House chief of staff, and Republican Alan Simpson, a former senator from Wyoming.

Acknowledging the controversy involved, Simpson quipped to reporters: "We'll both be in a witness-protection program when this is all over, so look us up." Bowles said, "This is a starting point."

Controversial or not, Bowles said serious action was demanded. He declared, "This debt is like a cancer that will truly destroy this country from within if we don't fix it."

The government reported separately Wednesday that the deficit for past month alone was $140.4 billion - and that was 20 percent lower than a year earlier.

The red ink for all of the past fiscal year was $1.29 trillion, second-highest on record, and this year is headed for the third straight total above $1 trillion.

Current deficits require the government to borrow 37 cents out of every dollar it spends.

Still, the plan was rejected as "simply unacceptable" by House Speaker Nancy Pelosi, D-Calif., a top Obama ally.

The White House held its fire. Spokesman Bill Burton said, "The president will wait until the bipartisan fiscal commission finishes its work before commenting."

The Social Security proposal would change the inflation measurement used to calculate cost-of-living adjustments for benefits, reducing annual increases.

It immediately drew a withering assault from advocates for seniors, who are already upset that there will be no inflation increase for 2011, the second straight year.

The plan would also raise the regular Social Security retirement age to 68 by about 2050 and to 69 in 2075. The full retirement age for those retiring now is 66. For those born in 1960 or after, the full retirement age is now 67.

Better-off beneficiaries would receive smaller Social Security payments than those in lower-earning brackets under the proposal, and the amount of income subject to Social Security taxes would be increased.

"The chairmen of the Deficit Commission just told working Americans to drop dead," AFL-CIO President Richard Trumka said in a statement.

From the right, anti-tax activist Grover Norquist, whose opinions carry great weight among Republicans, blasted the plan for its $1 trillion in tax increases over the coming decade. But Bowles and Simpson say eliminating costly tax deductions could bring income tax rates way down.

For every $1 of new revenue, the plan demands $3 in spending cuts. That was acceptable to Sen. Tom Coburn, R-Okla., a panel member. "If we do the cuts, I'll go for it," he said. "We may have to go for some revenues at some point."

The entire commission is supposed to report a deficit-cutting plan on Dec. 1, but panel members are unsure whether they'll be able to agree on anything approaching deficit cuts of the size proposed. And even if they could, any vote in Congress this year would be non-binding, Simpson said.